Aardee Builders vs MADURAI

CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH – COURT No. I

Service Tax Appeal No. 40874 of 2017
(Arising out of Order-in-Appeal No. MAD-CEX-APP-13/2017 dated 17.01.2017 passed by Commissioner of
Central Excise (Appeals), Lal Bahadur, Shastri Marg, C.R. Buildings, Madurai – 625 002 )


M/s. Aardee Builders ...Appellant
5-69, Kuruvikkaran Salai,
rd
3 Cross Street,
Sathamangalam,
Madurai – 625 002.
Versus
Commissioner of GST and Central Excise ...Respondent
Madurai Commissionerate,
No. 4, Lal Bahadur Shastri Marg,
C.R. Buildings, Bibikulam,
Madurai – 625 002.

APPEARANCE:
For the Appellant : Ms. S. Uma Maheswari, Advocate
For the Respondent : Mr. N. Satyanarayana, Authorised Representative

CORAM:
HON’BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL)
HON’BLE MR. AJAYAN T.V., MEMBER (JUDICIAL)

FINAL ORDER No. 41118 / 2026

DATE OF HEARING : 22.07.2026
DATE OF DECISION : 28.10.2026

Per Mr. VASA SESHAGIRI RAO

This present appeal, ST/40874/2017-DB, has
been filed by M/s. Aardee Builders, Madurai (hereinafter
referred to as “the appellant”) against Order-in-Appeal No.
MAD-CEX-000-APP-13-2017 dated 17.01.2017 (hereinafter
referred to as “the impugned order”) passed by the

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Commissioner (Appeals-I), Madurai, whereby the appeal filed
by the appellant against Order-in-Original No. MAD-ST-000-
ASC-001-16 dated 22.01.2016 was rejected and the demand
of service tax, interest and penalties were upheld.

2. The facts, briefly stated, are that the appellant,
registered for Commercial or Industrial Construction Service,
undertook, pursuant to Work Order No. W0400004/2011-12
dated 12.07.2011 issued by M/s. Vaigai Agro Products Ltd.,
preparation of granular sub-base for the proposed road
around its plant, involving removal of earth, laying and
rolling of gravel and earth. Against the work, the appellant
raised Bill No.05/2011-12 dated 24.10.2011 for
Rs.13,83,975/-, including VAT. The Department classified the
activity under Site Formation and Clearance, Excavation and
Earthmoving and Demolition Service and, by SCN dated
03.07.2015, demanded Rs.1,39,755/- for the period
01.04.2011 to 31.03.2012, with interest and penalties,
invoking the extended period. The demand and penalties
were confirmed by the adjudicating authority and upheld by
the Commissioner (Appeals). Being aggrieved, the appellant
is before us.

3.1 The Ld. Advocate Ms. S. Uma Maheswari for the
appellant, submitted that the Department had incorrectly

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severed the appellant’s work from the road construction
project. The appellant had undertaken formation of the
granular sub-base for the paver road, involving removal of
earth, laying of gravel and metal and compact rolling, all
integral stages of road construction. The fact that paver
blocks were to be laid subsequently by the recipient would
not alter the nature of the activity. In view of the exclusion
of roads from Commercial or Industrial Construction Service
under Section 65(25b) and CBEC Circular No.110/4/2009-ST
dated 23.02.2009, the activity was therefore not taxable
under the category as alleged in the SCN.

3.2 Without prejudice, the Ld. Counsel submitted
that even if classified as Site Formation Service, the activity
was exempt under Notification No.17/2005-ST dated
07.06.2005, which covered site formation, excavation,
earthmoving and similar activities undertaken in the course
of construction of roads, without any distinction between
public and private roads. Reliance was placed on CBEC
Order-Instruction in F.No.B1/6/2005-TRU dated 27.07.2005,
particularly para 14.4, and Shilpa Constructions Pvt. Ltd. v.
Commissioner of Service Tax, Ahmedabad, 2010 (19) S.T.R.
830 (Tri.-Ahmd.), wherein road construction was held not
liable to service tax even when forming part of a commercial
establishment.

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3.3 Reliance was also placed on M/s. Ganesh
Builders v. Commissioner of Central GST & Central Excise,
Jodhpur, 2026 (6) TMI 58 (CESTAT-New Delhi), wherein
earthwork, embankment, rolling and watering forming part
of road construction were held to be intrinsic and essential
components thereof for road constructions, and
Commissioner of Central Tax, Bengaluru v. P.J.B. Engineers
Pvt. Ltd., 2026 (1) TMI 1443 (Kar.), wherein the Hon’ble
Karnataka High Court, interpreting Notification No.17/2005-
ST, held that a public/private use restriction could not be
read into the notification when none was prescribed. It was
accordingly submitted that the appellant’s activity was either
outside the taxable category or, alternatively, exempt.

3.4 On limitation and penalty, learned Counsel
submitted that the work order, consideration and relevant
records were duly maintained and the issue arose during the
departmental audit. The appellant had acted on a bona fide
interpretation of the law and Board’s clarifications, with no
fraud, wilful misstatement or suppression of facts with an
intent to evade tax. The extended period and penalties were
therefore unsustainable; alternatively, benefit of Section 80
of the Finance Act, 1994 was claimed.

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4. Per Contra , the Ld. Authorized Representative
Shri N. Satyanarayana supported the impugned order. The
Revenue also supported invocation of the extended period on
the ground that the non-payment of service tax came to light
only during the departmental audit undertaken.

5. On consideration of the rival submissions and the
material on record, the following questions arise for
determination: -
i. Whether the appellant’s activity of removal of earth,
laying of gravel and metal, compact rolling and
formation of granular sub-base is classifiable as Site
Formation Service, or constitutes an integral part of
road construction and is consequently not taxable; and,
alternatively, whether it is exempt under Notification
No.17/2005-ST dated 07.06.2005.
ii. Whether the extended period under the proviso to
Section 73(1) and the penalties imposed under
Sections 77(2) and 78 of the Finance Act, 1994 are
sustainable?

Issue No. (i): Nature of the activity and exemption
6. We have carefully considered the available
records. The Work Order is the most direct evidence of the
nature and purpose of the service rendered. It expressly

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records that the appellant was engaged in “preparing and
providing granular sub-base for the proposed road at the
project site at Nagari”. The detailed scope required removal
of existing earth, spreading and rolling of red gravel,
preparation of the base by spreading and rolling, and
thereafter collection, mixing, leading and spreading of
granular sub-base using metal, gravel and quarry fines.
Thus, the work was specifically undertaken as part of the
paver-road project and was not an independent land-
development activity.

7. The granular sub-base constituted the
foundation and an essential stage of road construction. The
fact that the final paver blocks were to be laid subsequently
by the recipient does not sever the appellant’s work from the
road construction activity. The distinction sought to be drawn
by the Revenue between “preparatory work” and
“construction of road” cannot, in the facts of the present
case, be accepted. To treat the foundation and sub-base as a
separate taxable service merely because another person
subsequently lays the paver blocks would artificially divide an
integrated road-construction activity.

8. This conclusion finds direct support in M/s.
Ganesh Builders v. Commissioner of Central GST & Central

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Excise, Jodhpur, 2026 (6) TMI 58 - CESTAT New Delhi relied
upon by the Appellant. In that case, the Tribunal considered
earthwork, embankment construction, raising and
strengthening, road rolling and watering undertaken as sub-
contracted road works. On examining the work orders, it
held that such activities were intrinsic, essential and
fundamental components of road construction and could not
be artificially severed from the road construction activity
merely because they were preparatory in nature. The
Tribunal further held, on a harmonious reading of Serial
No.13(a) of Notification No.25/2012-ST, that the expression
“construction” encompasses the entire chain of activities
culminating in construction of the road, including site
preparation and allied works.

9. We are of the view that the ratio of Ganesh
Builders applies with considerable force to the present case.
The appellant's work of removal of earth, laying of gravel
and metal, compact rolling and formation of granular sub-
base was not an independent land-development activity but
constituted the foundation and an essential stage of the
paver-road construction. The fact that the final paver blocks
were to be laid subsequently by the recipient does not justify
artificially severing the appellant's work from the road
construction activity.

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10. Further, in SEM Construction v. Commissioner of
Central Excise, ST, Rajkot, 2021 (44) G.S.T.L. 385, the
Tribunal held, inter alia, that road-related earthwork and
Granular Sub-base laying with compaction constituted part of
the road construction activity and could not be classified as
Site Formation Service. The decision was subsequently
affirmed by the Hon'ble Supreme Court, as recorded in
Ganesh Builders. The ratio emerging from these decisions is
that activities which are integral and essential to the
formation of a road cannot be artificially severed from the
road construction activity merely because they precede or
constitute preparatory stages of the road.

11. The appellant's reliance upon Shilpa
Constructions Pvt. Ltd. v. Commissioner of Service Tax,
Ahmedabad, 2010 (19) S.T.R. 830 (Tri.-Ahmd.) is also well
founded. In that case, the Tribunal considered a contract
specifically relating to construction of a road/driveway and
examined the Board's Circular dated 27.07.2005. It held that
where construction of the road is recognised as a separate
activity under the contract, the exclusion applicable to road
construction cannot be denied merely because the road is
connected with a commercial establishment or is not
intended for public utility. The Tribunal accordingly held that

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the purpose for which the road was constructed was not
relevant where the contract separately identified the road
construction activity.

12. The position is further clarified by CBEC Circular
No.110/4/2009-ST dated 23.02.2009. In para 3, the Board
distinguished “Maintenance or repair activities” under para
3(A), comprising resurfacing, renovation, strengthening,
relaying and filling of potholes, from “Construction Activities”
under para 3(B), comprising “(I) Laying of a new road; (II)
Widening of narrow road to broader road (such as conversion
of a two lane road to a four lane road); and (III) Changing
road surface (graveled road to metalled road/metalled road
to blacktopped/blacktopped to concrete etc.)”. The
appellant's activity of removing existing earth, laying gravel
and metal and compact rolling the surface for formation of
the granular sub-base of the proposed paver road is plainly
associated with the construction of the road and does not fall
within any of the maintenance or repair activities identified in
para 3(A). The Circular thus supports the conclusion that the
appellant's work has to be viewed as an integral part of the
road construction activity rather than as an independent site-
formation service.

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13. The Commissioner (Appeals)'s reasoning,
proceeds substantially on the assumption that because the
Work Order uses the expression “proposed road” and refers
to a drawing, there could not have been an existing road and
therefore the work could not be classified either as laying of
a new road or changing of road surface. We find this
inference unsustainable. The expression “proposed road”
does not establish the absence of an existing road, nor does
preparation of a drawing establish that no road existed
earlier. More importantly, the question of an existing road is
not decisive once it is found, on the Work Order itself, that
the appellant's work was undertaken in the course of and for
construction of the road.

14. There is, in any event, an independent ground
on which the demand cannot be sustained. Notification
No.17/2005-ST dated 07.06.2005 exempts “site formation
and clearance, excavation and earthmoving and demolition
and such other similar activities” referred to in Section
65(105)(zzza), when provided by any person to any other
person “in the course of construction of roads, airports,
railways, transport terminals, bridges, tunnels, dams, ports
or other ports”, from the whole of the service tax leviable
thereon. The notification does not prescribe any requirement
that the road should be Government-owned, intended for use

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by the general public, or situated outside private or
commercial premises. Therefore, even if the appellant's
activity is treated as Site Formation Service, once it is found
to have been undertaken in the course of construction of the
paver road, it falls within the express terms of the
exemption.

15. This interpretation is supported by the
subsequent judgment of the Hon'ble Karnataka High Court in
Commissioner of Central Tax, Bengaluru v. P.J.B. Engineers
Pvt. Ltd., 2026 (1) TMI 1443 (Kar.). Though the case is
concerned with private railway sidings, the Court interpreted
the very same Notification No.17/2005-ST and held that, in
the absence of any express restriction, no distinction could
be drawn between Government and private railways or
between infrastructure intended for public carriage and that
constructed for commercial purposes. The Court held that
the expression “railways” in the notification covered railway
infrastructure constructed for commercial purposes and that
a limitation not contained in the notification could not be
introduced by interpretation. The principle is equally relevant
here, since “roads” are expressly included in Notification
No.17/2005-ST and the notification contains no restriction
confining the exemption to Government-owned or public
roads.

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16. The Board's Order-Instructions F.No. B1/6/2005-
TRU dated 27.07.2005 also supports this conclusion. While
para 6.2 explains the broad scope of Site Formation Service,
para 6.4 specifically clarifies that such services are exempt
under Notification No.17/2005-ST when provided in the
course of construction of roads. More importantly, under
para 14.4, the Board expressly clarified that “construction of
roads is not liable to service tax” in the context of
Commercial or Industrial Construction Service. The
clarification in para 14.5, concerning a single contract for a
commercial complex where the road is not recognised as a
separate activity, does not alter the position where, as in the
present case, the work order itself specifically identifies the
work as preparation and provision of granular sub-base for
the proposed road. The Department, therefore, cannot rely
upon the general description of site-formation activities in
para 6 while overlooking the specific clarification in paras 6.4
and 14.4 concerning road construction.

17. We therefore hold that the appellant's activity of
removal of earth, laying of gravel and metal, compact rolling
and formation of granular sub-base constituted an integral
stage of construction of the paver road and could not be
artificially classified as an independent Site Formation

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Service merely because the final paver blocks were laid
subsequently by the recipient. In any event, even if classified
as Site Formation Service, the activity is covered by the
exemption under Notification No.17/2005-ST, having been
undertaken in the course of construction of a road. Thus,
Issue No. (i) is accordingly answered in favour of the
appellant.

Issue No. (ii): Limitation and Penalties
18. The period involved is from 01.04.2011 to
31.03.2012, whereas the Show Cause Notice was issued on
03.07.2015. The normal period under Section 73(1), as
applicable to the proceedings, had therefore expired, and the
demand can survive only if the ingredients for invoking the
extended period are established.

19. The SCN alleges wilful suppression of the receipt
of consideration and states that the non-payment came to
the knowledge of the Department only during the audit
undertaken. However, the SCN itself relies upon the
appellant’s Work Order, Bill, correspondence and Audit
Report, which were part of the appellant’s regular records
and were not shown to have been concealed or withheld. The
dispute essentially concerns with the classification and

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taxability of the road-related activity and the applicability of
the statutory exclusion/exemption.

20. Mere adoption of a different view by the
Department cannot establish wilful suppression with an
intent to evade payment of tax. There must be positive
material showing deliberate withholding of a material fact.
No such material has been identified in the SCN or in the
materials before us. The ingredients required for invocation
of the extended period under the proviso to Section 73(1)
are therefore not satisfied. Consequently, the demand for the
period 01.04.2011 to 31.03.2012 is also barred by limitation.

21. Once the demand itself is unsustainable both on
merits and limitation, the consequential interest under
Section 75 cannot survive. The penalty under Section 78,
which is founded upon suppression with an intent to evade
payment of service tax, necessarily fails in the absence of
the requisite ingredients. The penalty under Section 77(2)
also cannot survive when the tax liability itself is held not
payable.

22. In the facts of the present case, the appellant's
reliance upon Section 80 of the Finance Act, 1994 also
deserves acceptance. The appellant acted on the basis of the

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statutory exclusion, the Board's Circular and the nature of
the road-related activity. Even assuming that there was any
procedural or interpretational lapse, the circumstances
constitute a reasonable cause. The penalties would therefore
not be justified even on this alternative ground.

23. In view of the foregoing findings, the demand of
Rs.1,39,755/-, together with interest and penalties imposed
under Sections 77(2) and 78 of the Finance Act, 1994,
cannot be sustained. The impugned Order-in-Appeal and the
Order-in-Original are accordingly set aside and the appeal is
allowed with consequential relief, if any, in accordance with
the law.

24. In the result, the appeal filed by M/s. Aardee
Builders is allowed with consequential relief, if any, as per
the law.
(Order pronounced in open court on 28.10.2026)


Sd/- Sd/-
(AJAYAN T.V.) (VASA SESHAGIRI RAO)
MEMBER (JUDICIAL) MEMBER (TECHNICAL)

MK